If you're a Colorado homeowner planning construction work or dealing with construction issues, you've likely encountered arbitration clauses in your contracts. These provisions can significantly impact your rights and options if problems arise, so it's crucial to understand what they mean and how they work.
What Is an Arbitration Clause?
An arbitration clause is a contractual provision that requires disputes to be resolved through arbitration rather than traditional court litigation. Instead of going before a judge and jury, you and the other party present your case to a neutral arbitrator who makes a binding decision.
In construction contracts, these clauses typically appear in purchase agreements for new homes, remodeling contracts, and community association governing documents. They often use language like "any disputes arising under this agreement shall be resolved through binding arbitration" or similar terms.
How Colorado Law Treats Arbitration Clauses
Colorado follows the Colorado Uniform Arbitration Act (CUAA), found in C.R.S. § 13-22-201 et seq., which generally favors enforcing arbitration agreements. Under C.R.S. § 13-22-206, arbitration agreements are "valid, enforceable, and irrevocable except on a ground that exists at law or in equity for the revocation of a contract."
This means that if you've signed a contract with an arbitration clause, Colorado courts will typically require you to arbitrate your disputes rather than sue in court, unless there's a compelling legal reason why the clause shouldn't be enforced.
What Types of Claims Must Be Arbitrated?
The scope of what must be arbitrated depends on how broadly the arbitration clause is written. Colorado courts generally focus on the underlying facts of your dispute, not just the legal labels you or your attorney attach to your claims.
Many construction arbitration clauses are written broadly to cover virtually all disputes "arising out of or relating to" the contract. Under such broad language, Colorado courts have generally required arbitration of various types of construction claims, including:
Breach of contract claims
Negligent construction claims
Consumer Protection Act violations
Negligent misrepresentation
Building code violations
Warranty claims
In Gergel v. High View Homes, LLC, the court held that a broad form arbitration clause in a homeowner's warranty covered the purchaser's claims for negligence, violation of the Consumer Protection Act, negligent misrepresentation, negligent concealment, and breach of the Soils Disclosure Act.
Even if you frame your lawsuit using different legal theories, if the underlying facts relate to the construction work covered by the contract, you'll likely be required to arbitrate.
Special Considerations for Homeowners
New Home Purchases
If you're buying a new home, your purchase contract almost certainly contains an arbitration clause. These clauses often extend beyond just the purchase agreement itself to cover warranty issues and construction defects that may arise after you move in.
Community Associations
Many homeowners associations and condominium associations have arbitration clauses in their governing documents. Under Colorado's Community Association laws, these arbitration requirements can be difficult to remove, even when property owners prefer court litigation instead. However, homeowners associations may be able to amend their declarations to remove arbitration provisions in certain circumstances, provided the amendment is properly recorded under C.R.S. § 38-33.3-303(1)(a).
Consumer Protections
While Colorado generally enforces arbitration clauses, there are some protections for consumers. An arbitration agreement may be unenforceable if:
The costs of arbitration would be prohibitively expensive for you
The clause is so one-sided that it's unconscionable
The agreement was obtained through fraud or duress
The Arbitration Process in Colorado
Selecting an Arbitrator
Under C.R.S. § 13-22-215, arbitrators have broad authority to conduct proceedings as they see fit for "fair and expeditious disposition" of your case. The contract typically specifies how arbitrators are selected, often through organizations like the American Arbitration Association.
Hearing Procedures
Colorado law requires that you receive at least five days' notice before any arbitration hearing under C.R.S. § 13-22-215. During the hearing, you have the right to:
Be heard and present your case
Present evidence relevant to the dispute
Cross-examine witnesses
Have legal representation
Discovery and Evidence
Unlike court cases, arbitration typically involves limited discovery (the process of obtaining evidence from the other party). Under C.R.S. § 13-22-215, the arbitrator has the power to determine the admissibility, relevance, materiality, and weight of any evidence.
Advantages and Disadvantages of Arbitration
Potential Advantages
Speed: Arbitration is often faster than court litigation
Privacy: Proceedings are confidential rather than public
Expertise: Arbitrators may have specialized construction knowledge
Flexibility: Less formal procedures than court
Potential Disadvantages
Limited appeals: You generally cannot appeal an arbitrator's decision, even if you believe it's wrong. Colorado law provides only narrow statutory grounds for vacating, modifying, or correcting arbitration awards under the CUAA.
Costs: You may have to pay arbitrator fees and administrative costs that don't exist in court. However, arbitration agreements may be unenforceable if the costs would be prohibitively expensive.
No jury trial: You lose your right to have your case decided by a jury
Limited discovery: You may have less opportunity to obtain evidence from the other party
When Arbitration Clauses May Not Apply
Certain situations may allow you to avoid arbitration:
Undisputed Claims
If you're simply seeking payment of an undisputed, fixed amount owed under the contract, arbitration may not be required.
Emergency Situations
Some contracts allow court action for emergency relief, such as stopping ongoing damage to your property.
Specific Exclusions
Some arbitration clauses specifically exclude certain types of claims, such as mechanic's lien foreclosures or collection of unpaid bills. Additionally, certain statutory claims must be pursued in court rather than arbitration.
Recent Legal Developments
Colorado law continues to evolve regarding construction arbitration. Several municipalities have enacted ordinances requiring specific disclosures about arbitration in new home sales, though the effectiveness of these provisions remains subject to legal challenge.
Additionally, courts have found that arbitration clauses in community association governing documents can be difficult to remove, depending on the specific provisions of the association's declaration and Colorado law.
What This Means for You
If you're facing construction problems and your contract contains an arbitration clause, you'll likely need to pursue your claims through arbitration rather than filing a lawsuit. This doesn't mean you have fewer rights or remedies – you can still seek damages, repairs, and other relief. However, the process will be different from traditional litigation.
Before signing any construction contract, carefully review the arbitration clause and consider:
What types of disputes it covers
How arbitrators are selected
Who pays arbitration costs
Whether any claims are excluded from arbitration
Important Exceptions
Some types of claims may not be subject to arbitration even if your contract contains an arbitration clause. For example, claims under Colorado's Wrongful Withholding of Security Deposits Act must be pursued in court, not arbitration.
Getting Legal Help
Construction arbitration clauses can significantly impact your rights as a homeowner. The language in these clauses varies considerably, and the specific facts of your situation will determine how they apply to your case.
If you're dealing with construction problems and your contract contains an arbitration clause, it's important to consult with an experienced Colorado construction defect attorney. They can help you understand your specific arbitration clause, evaluate your claims, and guide you through the arbitration process to protect your interests.
Don't assume that having an arbitration clause means you have no recourse or that your case is less valuable. With proper legal representation, arbitration can be an effective way to resolve construction disputes and obtain the compensation you deserve for construction defects or other problems with your home.
Have Questions About Construction Contracts?
Our experienced construction defect attorneys are here to help. Schedule a free 15-minute screening call to discuss your situation.
